Wednesday, May 28, 2014

The Case-Shiller house price indexes for March were released yesterday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.

The Case-Shiller data for March 2014 came out [yesterday], and based on this information and the April 2014 Zillow Home Value Index (ZHVI, released May 20), we predict that next month’s Case-Shiller data (April 2014) will show that both the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 11.8 percent on a year-over-year basis, respectively. The seasonally adjusted (SA) month-over-month change from March to April will be 1.2 percent for the 20-City Composite Index and 1.1 percent for the 10-City Composite Home Price Index (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for April will not be released until Tuesday, June 24.

Case-Shiller indices have shown very little slowing in monthly appreciation, as they continue to show a somewhat inflated picture of home prices. On a year-over-year basis the indices are slowing down ever so slightly, but we have not seen the same signs of a slowdown in the Case-Shiller data that we have seen in other data. The Case-Shiller indices are biased toward the large, coastal metros currently still seeing substantial home value gains, and they include foreclosure re-sales. The inclusion of foreclosure re-sales disproportionately boosts the index when these properties sell again for much higher prices — not just because of market improvements, but also because the sales are no longer distressed. However, as the prevalence of foreclosures and foreclosure re-sales is declining, so is the impact they have on the Case-Shiller indices. Moreover, the fact that Case-Shiller uses a three-month average is strongly diluting the impact of the most recent numbers and with that the showing of a slowdown. More on the difference between Case-Shiller and ZHVI can be found here.

We expect home value appreciation to continue to moderate in 2014 (even if we can’t yet see it in the Case-Shiller data), rising 2.2 percent between April 2014 and April 2015, nationally — a rate much more in line with historic appreciation rates. The main drivers of this moderation include rising mortgage rates and less investor participation – leading to decreased demand – and increasing for-sale inventory supply. Further details on our forecast of home values can be found here, and more on Zillow’s full April 2014 report can be found here.

So the Case-Shiller index will probably show another strong year-over-year gain in April, but a little lower than in March (12.4% year-over-year).

Zillow March 2014 Forecast for Case-Shiller Index

Case Shiller Composite 10

Case Shiller Composite 20

NSA

SA

NSA

SA

Case Shiller
(year ago)

Apr
2013

165.35

168.35

152.24

155.07

Case-Shiller
(last month)

Mar
2014

181.43

186.35

166.80

171.39

Zillow Forecast

YoY

11.8%

11.8%

11.8%

11.8%

MoM

1.9%

1.1%

2.0%

1.2%

Zillow Forecasts1

184.9

188.3

170.2

173.4

Current Post Bubble Low

146.45

149.86

134.07

137.13

Date of Post Bubble Low

Mar-12

Feb-12

Mar-12

Jan-12

Above Post Bubble Low

26.2%

25.7%

26.9%

26.5%

1Estimate based on Year-over-year and Month-over-month Zillow forecasts